India’s 4% Inflation Target Likely to Hold as RBI Anchors Post-Cut Strategy

An internal Reserve Bank of India committee has all but finalised a proposal telling the Finance Ministry to stick with the 4% consumer‑price target. It’s a 2%-6% corridor when the five‑year framework will be renewed next year. People familiar with deliberations said the draft will be handed to Governor Sanjay Malhotra by September. It leaves six months for the government to sign off ahead of the March 2026 expiry. Since its adoption in 2016, flexible inflation targeting has contained price shocks. Even during the 2022 food‑and‑fuel surge, missing the band only once for three consecutive quarters. Committee members argue that tinkering now would unsettle bond investors already grappling with a new governor and a refreshed Monetary Policy Committee

The Food Debate Won’t Go Away

Volatile food items make up 46% of India’s CPI basket, and some officials have lobbied for a core‑only yardstick. The panel disagrees, insisting households feel food costs first and that excluding them would erode public trust. Chief Economic Adviser V. Anantha Nageswaran floated the exclusion idea last year; former Governor Shaktikanta Das quickly shot it down, and Malhotra’s team now looks ready to bury it.

June’s Rate Shock Sets the Stage

On 6 June, the RBI front‑loaded easing with a 50‑basis‑point repo cut to 5.50% and a 100‑bp cash‑reserve‑ratio trim, switching its stance to “neutral.” The central bank said subdued inflation had earned it “limited policy space” for growth support. By ring‑fencing the 4 % target, policymakers can argue the June move was disciplined, not a free‑for‑all.

Cooling Inflation Brings Policy Clarity, Calms Markets

Headline CPI cooled to 2.82% in May, its lowest print since early 2019, allowing the RBI to project fiscal‑year‑2026 inflation at 3.7%. Sub‑4% readings give the MPC room for one modest additional cut later this year if growth stalls, analysts believe. Benchmark 10‑year bond yields slipped six basis points to 6.78% on the draft news, reversing part of the 10‑bp jump that followed June’s jumbo cut. The rupee edged past 84 per dollar as traders marked down near‑term carry. This prompted the central bank to enter the swap market to smooth moves.

What the Crypto Market Should Watch

Policy predictability greases liquidity: cheaper rupee funding historically widens on‑exchange order books and boosts derivative open interest. A weaker rupee often nudges savers toward dollar‑backed stablecoins. While regulatory headroom freed by low inflation can accelerate the long‑awaited Digital Asset Bill. For global funds eyeing India’s Web3 scene, a locked‑in 4% target signals that macro surprises are less likely to derail capital deployment.

Risk Factors to Monitor

Food‑price shocks from a poor monsoon or an oil spike above $80 could drive CPI back toward the 6% ceiling, forcing a policy rethink. A hawkish Federal Reserve would also pressure the rupee, limiting the RBI’s scope to ease further. Any deviation from headline CPI as the benchmark would reopen ideological battles inside the Finance Ministry and unsettle investors. A recommendation to keep the 4% inflation anchor isn’t just technocratic housekeeping; it’s a confidence play. By reaffirming a rule that markets understand, the RBI shores up credibility after its bold June cut and lays steadier ground. For both conventional investors and India’s booming crypto class to plan their next moves.